Sub-segments of the property sector such as shophouses and retail space will continue to be in strong demand, immediate past president of Malaysian Institute of Estate Agents (MIEA) Stephen Tew said.
I am actually quite bullish about the shophouse market which had taken a very bad beating during the 1997 financial crisis, registering the largest decline in capital value. So, I would say that with the prices of shophouses still low, this segment would eventually show the highest rebound, he told StarBiz in an interview.
However, investors should understand they can only invest in shophouses where there is a population to support the demand for commercial units in the vicinity, Tew highlighted.
Places which rank high among the shophouse investment locations are established areas such as SS2, Damansara Utama, Damansara Jaya, the developed part of Subang Jaya, Sri Hartamas, Desa Hartamas, Damansara Heights, Bangsar or the better part of Kuala Lumpur.
In many areas, I believe the value of shophouses has the potential to rise by at least 50% in capital value between now and the time that property market will reach its fair market value. If you talk about the next peak in the property cycle, I would not be surprised if many units in the established areas double in value, he said.
Generally, the prime locations for shophouses lie in the southwest direction from Kuala Lumpur city to Subang Jaya, he noted, where the middle and upper income population stay, in addition to the availability of completed infrastructure.
However, one still reads or hears of investors who have lost money in their investments in shophouses.
They should understand and learn how to invest in shophouses, as they may have invested in places where there is not enough surrounding population. The growing number of managers and chief executive officers living in the southwest directions, said to have better feng shui, can influence the demand and supply of shops and offices in these areas.
Areas with the highest population growth also show the highest appreciation in capital values, Tew said, adding that the occupancy rate was generally more than 80% and in some areas, even 90%.
Gross rental returns from an investment in a shophouse in the established areas are between 7% and 8%, he said.
As for retail space, my bullish expectation is in view of the strong population growth, healthy employment figures which would help boost domestic consumption, especially from the younger generation where the appeal of branded items stays buoyant, he said.
The government's push towards higher domestic consumption in the past three years has been another pull factor. The occupancy rate in most shopping complexes in Kuala Lumpur is more than 90%, except for those in poorer locations.
Players at poorer locations must strategise on how to move forward. For example, Imbi Plaza at Bukit Bintang was re-modelled into an IT hub in view of the fact that its location is not as prime as those of Sungei Wang Plaza, Bukit Bintang Plaza or Lot 10.
However, the office space sub-segment still did not look promising just yet, Tew said.
To a certain extent, the substantial addition of development at Putrajaya has contributed to the bulk of commercial space at the moment, he said.
We have seen more and more space being built at Putrajaya. While more government offices will relocate there, that puts a dampener on the office space market, he added.
Citing a similar case for the office space situation back in 1988 and 1989, Tew said, the way out for the market then, was via foreign direct investments (FDIs), which came substantially in the manufacturing industry. The spinoffs had, in turn, created demand for office space.
The spin-offs included requirement for services in the consultancy services, accounting, secretarial, legal and personnel sectors which required office set-ups and helped mop up the excess office space.
The opening up of Cyberjaya was another factor in the office space situation, he said, with many of IT companies, which were originally situated in Petaling Jaya or Kuala Lumpur moving there, attracted by the incentives provided.
Tew said: As we all know, FDI generally had not been forthcoming into Malaysia, therefore, I cannot see the light at the end of the tunnel yet from that aspect of the office space situation.
There could be a ray of hope in view of the coming onstream of the Asean Free Trade Area (Afta) and World Trade Organisation (WTO), when we have to open our markets to foreigners eventually.
I wonder if these foreign companies will be keen to set up small operational or representative offices in Malaysia to prepare themselves for liberalisation.
I believe that some foreign investors still see the opportunities in our country and there could be companies looking at positioning themselves.
I am not saying that there is no new demand for office space, but taking into account both positive and negative factors, there was more contraction in the uptake rather than expansion.
The general occupancy for the office sub-segment was about 75, he added.
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